SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 2, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-12137
THERMO FIBERGEN INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3311544
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8 Alfred Circle
Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at October 29, 1999
Common Stock, $.01 par value 14,243,300
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
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THERMO FIBERGEN INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<S> <C> <C>
October 2, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents $ 37 $ 6,748
Advance to affiliate (Note 5) 6,658 -
Available-for-sale investments, at quoted market 46,246 48,206
value (amortized cost of $46,354 and $48,210)
Accounts receivable, less allowance of $30 1,756 1,188
Inventories:
Raw materials and supplies 230 151
Finished goods 343 334
Prepaid income taxes and other current assets 421 366
Due from parent company and affiliated companies 372 300
------- -------
56,063 57,293
------- -------
Property, Plant, and Equipment, at Cost 11,326 11,175
Less: Accumulated depreciation and amortization 3,002 2,250
------- -------
8,324 8,925
------- -------
Other Assets 740 802
------- -------
Cost in Excess of Net Assets of Acquired Company 3,920 4,096
------- -------
$69,047 $71,116
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2
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THERMO FIBERGEN INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Accounts payable $ 602 $ 327
Accrued payroll and employee benefits 373 325
Accrued income taxes 575 -
Other accrued liabilities 1,577 732
Common stock subject to redemption ($60,116 redemption value), 59,073 -
4,715,000 shares issued and outstanding
------- ------
62,200 1,384
------- ------
Deferred Income Taxes 230 230
------- ------
Common Stock Subject to Redemption ($60,116 redemption value), - 58,260
4,715,000 Shares Issued and Outstanding
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares authorized; 100 100
10,000,000 shares issued
Capital in excess of par value 11,145 11,145
Retained earnings 50 -
Treasury stock at cost, 471,700 shares (4,609) -
Accumulated other comprehensive items (Note 2) (69) (3)
------- ------
6,617 11,242
------- ------
$69,047 $71,116
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMO FIBERGEN INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $ 2,266 $1,124
------- ------
Costs and Operating Expenses:
Cost of revenues 1,328 688
Selling, general, and administrative expenses 781 739
Research and development expenses 331 342
------- ------
2,440 1,769
------- ------
Operating Loss (174) (645)
Interest Income 678 770
------- ------
Income Before Provision for Income Taxes 504 125
Provision for Income Taxes 202 50
------- ------
Net Income $ 302 $ 75
======= ======
Earnings per Share (Note 3):
Basic $ .02 $ .01
======= ======
Diluted $ .02 $ -
======= ======
Weighted Average Shares (Note 3):
Basic 14,307 14,715
======= ======
Diluted 14,959 17,174
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMO FIBERGEN INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $ 6,593 $3,784
------- ------
Costs and Operating Expenses:
Cost of revenues 3,667 2,280
Selling, general, and administrative expenses 2,518 2,427
Research and development expenses 990 1,162
------- ------
7,175 5,869
------- ------
Operating Loss (582) (2,085)
Interest Income 2,021 2,414
------- ------
Income Before Provision for Income Taxes 1,439 329
Provision for Income Taxes 576 132
------- ------
Net Income $ 863 $ 197
======= ======
Earnings per Share (Note 3):
Basic $ .06 $ .01
======= ======
Diluted $ .05 $ .01
======= ======
Weighted Average Shares (Note 3):
Basic 14,451 14,715
======= ======
Diluted 15,730 16,688
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO FIBERGEN INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 863 $ 197
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 989 815
Changes in current accounts:
Accounts receivable (568) (118)
Inventories (88) 23
Other current assets (16) (63)
Accounts payable 275 (30)
Other current liabilities 1,002 81
Other - 130
-------- -------
Net cash provided by operating activities 2,457 1,035
-------- -------
Investing Activities:
Purchases of available-for-sale investments (61,825) (51,225)
Proceeds from sale and maturities of available-for-sale investments 62,827 43,961
Advances to affiliate, net (Note 5) (6,658) -
Purchases of property, plant, and equipment (469) (4,017)
Other 854 84
-------- -------
Net cash used in investing activities (5,271) (11,197)
-------- -------
Financing Activities:
Purchases of Company common stock (1,598) -
Purchases of Company common stock from Thermo Electron (2,227) -
Change in due from parent company and affiliated companies (72) (143)
-------- -------
Net cash used in financing activities (3,897) (143)
-------- -------
Decrease in Cash and Cash Equivalents (6,711) (10,305)
Cash and Cash Equivalents at Beginning of Period 6,748 21,752
-------- -------
Cash and Cash Equivalents at End of Period $ 37 $11,447
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
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Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Fibergen Inc. (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at October 2, 1999, the results of
operations for the three- and nine-month periods ended October 2, 1999, and
October 3, 1998, and the cash flows for the nine-month periods ended October 2,
1999, and October 3, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of January 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q, and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents unrealized net of tax gains and losses on available-for-sale
investments, reported as a component of shareholders' investment in the
accompanying balance sheet. During the third quarter of 1999 and 1998, the
Company had comprehensive income of $263,000 and $80,000, respectively. During
the first nine months of 1999 and 1998, the Company had comprehensive income of
$797,000 and $180,000, respectively.
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3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income $ 302 $ 75 $ 863 $ 197
------ ------- ------ -------
Weighted Average Shares 14,307 14,715 14,451 14,715
------ ------- ------ -------
Basic Earnings per Share $ .02 $ .01 $ .06 $ .01
====== ======= ====== =======
Diluted
Net Income $ 302 $ 75 $ 863 $ 197
------ ------- ------ -------
Weighted Average Shares 14,307 14,715 14,451 14,715
Effect of:
Redemption rights 610 2,459 1,257 1,972
Stock options 42 - 22 1
------ ------- ------ -------
Weighted Average Shares, as Adjusted 14,959 17,174 15,730 16,688
------ ------- ------ -------
Diluted Earnings per Share $ .02 $ - $ .05 $ .01
====== ======= ====== =======
7
<PAGE>
3. Earnings per Share (continued)
The computation of diluted earnings per share for each period excludes the
effect of assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of October 2, 1999, there were 20,000 of such
options outstanding, with an exercise price of $12.75 per share.
4. Business Segment Information
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Cellulose-based Products $1,922 $ 904 $5,558 $ 3,564
Fiber-recovery and Water-clarification Services 344 220 1,035 220
------ ------- ------ -------
$2,266 $ 1,124 $6,593 $ 3,784
====== ======= ====== =======
Income Before Provision for Income Taxes:
Cellulose-based Products $ 277 $ (56) $ 797 $ 17
Fiber-recovery and Water-clarification Services (451) (589) (1,379) (2,102)
------ ------- ------ -------
Total operating loss (174) (645) (582) (2,085)
Interest income 678 770 2,021 2,414
------ ------- ------ -------
$ 504 $ 125 $1,439 $ 329
====== ======= ====== =======
5. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron Corporation
commenced use of a new domestic cash management arrangement. Under the new
arrangement, amounts advanced to Thermo Electron by the Company for domestic
cash management purposes bear interest at the 30-day Dealer Commercial Paper
Rate plus 50 basis points, set at the beginning of each month. Thermo Electron
is contractually required to maintain cash, cash equivalents, and/or immediately
available bank lines of credit equal to at least 50% of all funds invested under
this cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The Company has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice.
Amounts invested in this arrangement are included in "advance to affiliate" in
the accompanying balance sheet.
In addition, under the new domestic cash management arrangement, amounts
borrowed from Thermo Electron for domestic cash management purposes bear
interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points, set
at the beginning of each month. The Company has no borrowings under this
arrangement at October 2, 1999.
6. Subsequent Event
In October 1999, the Company agreed to transfer $2.2 million in cash to a
newly formed subsidiary for the acquisition of capital equipment and technology
related to the development of thermoplastic composites based on byproducts from
the papermaking process. The seller of these assets will receive an initial
payment of $500,000; future payments aggregating $1,700,000, if certain
conditions are met; and a 49% equity interest in the subsidiary, creating a
joint venture that plans to produce, market, and sell thermoplastic composites.
The Company also agreed to transfer an additional $1.0 million in cash to the
subsidiary for purchases of capital equipment. To the extent that such
8
<PAGE>
6. Subsequent Event (continued)
funds are not used for capital equipment purchases by April 2001, they will be
remitted to the seller as additional consideration for the acquired assets. The
Company has options to acquire the 49% equity interest not owned by the Company,
exercisable during the months of October 2001, October 2002, or October 2003,
for pre-established multiples of the joint venture's pre-tax earnings.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, filed with the Securities and Exchange
Commission.
Overview
The Company organizes and manages its business by individual functional
operating entity. The Company's two operating entities constitute the Company's
business segments: Fiber-recovery and Water-clarification Services and
Cellulose-based Products. The Fiber-recovery and Water-clarification Services
segment currently owns and operates a plant that helps pulp and paper mills
improve product quality, reduce costs, and close the loop in their water and
solids systems on a long-term contract basis, and this segment intends to
design, build, own, and operate additional plants. The plants recover and return
to the mill long cellulose fiber and clarified water to be reused in
papermaking. In July 1998, the Company completed construction of, and began
operating, its first fiber-recovery and water-clarification facility, providing
clean water and long fiber to a mill under a ten-year contract.
The Cellulose-based Products segment, which consists of the Company's
GranTek subsidiary, employs patented technology to produce absorbing granules
from papermaking byproducts that are marketed and sold as Biodac(R) agricultural
carriers, Gransorb(TM) oil and grease absorbents, and PaPurr(TM) (pronounced
"paper") cat box filler. Biodac(R) is used to deliver agricultural chemicals for
professional turf, home lawn and garden, agricultural row-crop, and
mosquito-control applications. Products under development include
natural-fiber-based plastic composites and controlled-release granules for
carrying fertilizers.
Revenues from the Cellulose-based Products segment are principally from
sales in the agricultural-carrier market. The Company's primary customers in
this market, chemical formulators, typically purchase carriers during the winter
and spring for the cultivation and planting season. As a result, the Company
earns a disproportionate share of its revenues from its agricultural-carrier
products during the first two quarters of the year. The Company believes that
its entrance into the oil and grease absorption, cat box filler, and
international agricultural row-crop markets, if successful, may mitigate the
seasonality of the Company's sales.
The Company currently intends to limit the pace and amount of its research
and development so that its research and development expenditures will not
exceed the interest income earned on its cash, cash equivalents,
available-for-sale investments, and advance to affiliate, plus the Company's
operating earnings, if any, before research and development expenses.
9
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Results of Operations
Third Quarter 1999 Compared With Third Quarter 1998
Revenues increased to $2,266,000 in the third quarter of 1999 from
$1,124,000 in the third quarter of 1998, due to increased revenues at both the
Cellulose-based Products segment and the Fiber-recovery and Water-clarification
Services segment. Revenues at the Cellulose-based Products segment increased
principally due to increased demand for Biodac from its largest customer, as
well as increased sales of its cat box filler product, which was introduced in
the third quarter of 1998. Revenues at the Fiber-recovery and
Water-clarification Services segment increased due to the inclusion for the full
1999 period of revenues from its fiber-recovery and water-clarification
facility, which began operations in July 1998.
The gross profit margin increased to 41% in the third quarter of 1999 from
39% in the third quarter of 1998. In 1998, the gross profit margin at the
Cellulose-based Products segment was reduced by additional costs associated with
the introduction of its cat box filler product.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 34% in the third quarter of 1999 from 66% in the third quarter of
1998, principally due to an increase in revenues at both segments.
Research and development expenses were relatively unchanged at $331,000 in
the third quarter of 1999 and $342,000 in the third quarter of 1998.
Interest income decreased to $678,000 in the third quarter of 1999 from
$770,000 in the third quarter of 1998, principally as a result of a decrease in
average invested balances. Average invested balances decreased primarily due to
the use of cash to fund purchases of Company common stock during 1999.
The effective tax rate was 40% in the third quarter of 1999 and 1998. The
effective tax rate exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes.
First Nine Months 1999 Compared With First Nine Months 1998
Revenues increased to $6,593,000 in the first nine months of 1999 from
$3,784,000 in the first nine months of 1998. The increase in revenues was
primarily at the Cellulose-based Products segment, as a result of increased
demand for Biodac from its largest customer, as well as increased sales of its
cat box filler product, which was introduced in the third quarter of 1998.
Revenues increased at the Fiber-recovery and Water-clarification Services
segment due to the inclusion of revenues for the full 1999 period from its
fiber-recovery and water-clarification facility, which began operations in July
1998.
The gross profit margin increased to 44% in the first nine months of 1999
from 40% in the first nine months of 1998, primarily at the Fiber-recovery and
Water-clarification Services segment due to the inclusion of higher-margin
revenues from its fiber-recovery and water-clarification facility. The gross
profit margin increased at the Cellulose-based Products segment, primarily
because the 1998 gross profit margin was reduced due to both the effect of a
decrease in production volume resulting from necessary shutdowns of the GranTek
manufacturing plant while emptying inventory storage tanks and, to a lesser
extent, additional costs in 1998 associated with the introduction of its cat box
filler product.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 38% in the first nine months of 1999 from 64% in the first nine
months of 1998, principally due to an increase in revenues at both segments.
10
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First Nine Months 1999 Compared With First Nine Months 1998 (continued)
Research and development expenses decreased to $990,000 in the first nine
months of 1999 from $1,162,000 in the first nine months of 1998, primarily due
to a reduction in expenditures related to the development of the fiber-recovery
process at the Fiber-recovery and Water-clarification Services segment.
Interest income decreased to $2,021,000 in the first nine months of 1999
from $2,414,000 in the first nine months of 1998, principally as a result of a
decrease in average invested balances. Average invested balances decreased
primarily due to the use of cash to fund the construction of the Company's
fiber-recovery and water-clarification facility, completed in July 1998, and to
fund purchases of Company common stock during 1999.
The effective tax rate was unchanged at 40% in the first nine months of
1999 and 1998. The effective tax rate exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes.
Liquidity and Capital Resources
The Company had negative working capital of $6,137,000 at October 2, 1999,
compared with working capital of $55,909,000 at January 2, 1999. Working capital
decreased $59,073,000 due to the reclassification of common stock subject to
redemption to current liabilities. Included in working capital at October 2,
1999, are cash, cash equivalents, and available-for-sale investments of
$46,283,000, compared with $54,954,000 at January 2, 1999. In addition, the
Company had $6,658,000 invested in an advance to affiliate at October 2, 1999.
Prior to the use of a new domestic cash management arrangement between the
Company and Thermo Electron Corporation (Note 5), which became effective June 1,
1999, amounts invested with Thermo Electron were included in cash and cash
equivalents.
During the first nine months of 1999, $2,457,000 of cash was provided by
operating activities. An increase in accounts receivable used $568,000 of cash,
primarily due to higher revenues. An increase in other current liabilities
provided $1,002,000 of cash, primarily due to an increase in accrued income
taxes.
During the first nine months of 1999, the Company's primary investment
activities involved the purchase, sale, and maturity of available-for-sale
investments and advances to affiliate (Note 5).
During the first nine months of 1999, the Company's financing activities
used $3,897,000 of cash, principally for the purchase of Company common stock in
open market and negotiated transactions, pursuant to authorizations by its Board
of Directors. As of October 2, 1999, the Company had a remaining authorization
to purchase $2,618,000 of Company common stock in open market or negotiated
transactions through March 16, 2000. Any such purchases will be funded from
working capital. At October 2, 1999, the Company had accrued $784,000 for shares
of Company common stock that were purchased during the third quarter of 1999 for
which settlement occurred in the following quarter.
The Company's common stock subject to redemption is redeemable by holders
of redemption rights in September 2000 or September 2001 for a total redemption
value of $60,116,000. The redemption rights are guaranteed, on a subordinated
basis, by Thermo Electron. As of October 2, 1999, there were 4,715,000
redemption rights outstanding and only 3,807,450 shares of Company common stock
held by persons other than Thermo Electron, Thermo Fibertek Inc., or the
Company.
In October 1999, the Company agreed to transfer $2.2 million in cash to a
newly formed subsidiary for the acquisition of capital equipment and technology
related to the development of thermoplastic composites based on byproducts from
the papermaking process. The seller of these assets will receive an initial
payment of $500,000; future payments aggregating $1,700,000, if certain
conditions are met; and a 49% equity interest in the subsidiary, creating a
joint venture that plans to produce, market, and sell thermoplastic composites.
The Company also agreed to transfer an additional $1.0 million in cash to the
subsidiary for purchases of capital equipment. To the extent that such
11
<PAGE>
Liquidity and Capital Resources (continued)
funds are not used for capital equipment purchases by April 2001, they will be
remitted to the seller as additional consideration for the acquired assets. The
Company has options to acquire the 49% equity interest not owned by the Company,
exercisable during the months of October 2001, October 2002, or October 2003,
for pre-established multiples of the joint venture's pre-tax earnings.
During the remainder of 1999, the Company plans to make expenditures for
property, plant, and equipment of approximately $1,300,000. In addition, the
Company may make capital expenditures for the construction of additional
fiber-recovery and water-clarification facilities. Construction of
fiber-recovery and water-clarification facilities is dependent upon the Company
entering into long-term contracts with paper mills, under which the Company will
charge fees to process the mills' papermaking byproducts. There is no assurance
that the Company will be able to obtain such additional contracts. The Company
anticipates that it will require significant amounts of cash for any
construction of its fiber-recovery and water-clarification facilities. The
Company will seek to finance any construction of such facilities through a
combination of internal funds, additional debt financing, and/or borrowings from
Thermo Fibertek and Thermo Electron, although there is no agreement with Thermo
Fibertek or Thermo Electron under which such parties would be obligated to lend
funds to the Company. The Company believes that its existing resources will be
sufficient to meet the Company's capital requirements until September 2000, when
the Company's redemption rights become exercisable. The Company's liquidity will
be materially adversely affected if the redemption of its common stock occurs in
the third quarter of 2000.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) assessing the year 2000
readiness of its key suppliers, vendors, and customers; and (iii) developing a
contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and noninformation technology systems
for year 2000 compliance, has largely been completed. During phase one, the
Company tested and evaluated its significant computer systems, software
applications, and related equipment for year 2000 compliance. The Company also
evaluated the potential year 2000 impact on its critical noninformation
technology systems. The Company's efforts included testing the year 2000
readiness of its manufacturing, utility, and telecommunications systems at its
critical facilities. The Company is currently in phase two of its program,
during which any material noncompliant information technology systems or
noninformation technology systems that were identified during phase one are
prioritized and remediated. Based on its evaluations, the Company does not
believe that any material upgrades to its critical noninformation technology
systems are needed. The Company is currently upgrading or replacing its material
noncompliant information technology systems, and the majority of this process
was complete as of October 2, 1999. The Company expects that all of its material
information technology systems and critical noninformation technology systems
will be year 2000 compliant by the end of November 1999.
The Company believes that all of its current material products are not
date sensitive and should not be affected by year 2000 issues.
12
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Year 2000 (continued)
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers, vendors, and customers that are believed to be
significant to the Company's business operations. As part of this effort, the
Company has developed and distributed questionnaires relating to year 2000
compliance to its significant suppliers, vendors, and customers. To date, no
significant supplier, vendor, or customer has indicated that it believes its
business operations will be materially disrupted by the year 2000 issue. The
Company has substantially completed its assessment of third-party risk, and has
determined the impact on the Company of any third-party risk on the part of its
suppliers and vendors to be minimal.
Contingency Plan
The Company has developed a contingency plan that the Company expects will
allow its primary business operations to continue despite disruptions due to
year 2000 problems. The plan includes identifying and securing alternate
suppliers, increasing inventories, and securing alternate sources of power
generation, among other things. As the Company continues to evaluate the year
2000 readiness of its business systems, facilities, and significant suppliers,
vendors, and customers, it will modify and adjust its contingency plan as may be
required.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had not incurred any material expenses to third parties
(external costs) related to year 2000 issues as of October 2, 1999, and the
total external costs of year 2000 remediation are not expected to be material.
Year 2000 costs are funded from working capital. All internal costs and related
external costs other than capital additions related to year 2000 remediation
have been and will continue to be expensed as incurred. The Company does not
track the internal costs incurred for its year 2000 compliance project. Such
costs are principally the related payroll costs for its information systems
staff.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
If any of the Company's material customers, or its material suppliers or vendors
as described above, experience business disruptions due to year 2000 issues, the
Company might also be materially adversely affected. There is expected to be a
significant amount of litigation relating to the year 2000 issue and there can
be no assurance that the Company will not incur material costs in defending or
bringing lawsuits. In addition, if any year 2000 issues are identified, there
can be no assurance that the Company will be able to retain qualified personnel
to remedy such issues. Any unexpected costs or delays arising from the year 2000
issue could have a significant adverse impact on the Company's business,
operations, and financial condition in amounts that cannot be reasonably
estimated at this time.
13
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in equity prices and
interest rates has not changed materially from year-end 1998.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
(d) Use of Proceeds
The Company sold 4,715,000 Units (each Unit consisting of one share of the
Company's common stock and one redemption right, which enables the holder to
sell one share of the Company's common stock to the Company during the month of
September 2000 or the month of September 2001 for $12.75 in cash), pursuant to a
Registration Statement on Form S-1 (File No. 333-07585), which was declared
effective by the Securities and Exchange Commission on September 13, 1996. The
managing underwriters of the offering were NatWest Securities Limited, Lehman
Brothers, and Oppenheimer & Co., Inc. The aggregate gross proceeds of the
offering were $60,116,250. The Company's total expenses in connection with the
offering were $4,335,250, of which $3,913,450 was for underwriting discounts and
commissions, $401,800 was for other expenses paid to persons other than
directors or officers of the Company, persons owning more than 10% of any class
of equity securities of the Company, or affiliates of the Company (collectively,
Affiliates), and $20,000 was paid to Thermo Electron for certain corporate
services rendered in connection with the offering. The Company's net proceeds
from the offering were $55,781,000. As of October 2, 1999, the Company had
expended $5,283,000 of such net proceeds for the purchase of property, plant,
and equipment, including $3,573,000 for the construction of a
water-clarification and fiber-recovery facility. The Company has invested, from
time to time, the balance of such net proceeds primarily in investment grade
interest- or dividend-bearing instruments. As of October 2, 1999, remaining net
proceeds of $43,840,000 were invested directly with persons other than
Affiliates and $6,658,000 were invested pursuant to a cash management
arrangement with Thermo Electron.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 5th day of November 1999.
THERMO FIBERGEN INC.
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
FIBERGEN INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 2,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-END> OCT-02-1999
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<RECEIVABLES> 1,786
<ALLOWANCES> 30
<INVENTORY> 573
<CURRENT-ASSETS> 56,063
<PP&E> 11,326
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